Correlation Between Xtrackers and WisdomTree

Can any of the company-specific risk be diversified away by investing in both Xtrackers and WisdomTree at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Xtrackers and WisdomTree into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xtrackers II and WisdomTree SP 500, you can compare the effects of market volatilities on Xtrackers and WisdomTree and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Xtrackers with a short position of WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and WisdomTree.

Diversification Opportunities for Xtrackers and WisdomTree

-0.35

Correlation Coefficient

Xtrackers  WisdomTree

Very good diversification

The 3 months correlation between Xtrackers and WisdomTree is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and WisdomTree SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SP 500 and Xtrackers is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Xtrackers II are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SP 500 has no effect on the direction of Xtrackers i.e., Xtrackers and WisdomTree go up and down completely randomly.

Pair Corralation between Xtrackers and WisdomTree

Assuming the 90 days trading horizon Xtrackers is expected to generate 5.85 times less return on investment than WisdomTree. But when comparing it to its historical volatility, Xtrackers II is 3.31 times less risky than WisdomTree. It trades about 0.05 of its potential returns per unit of risk. WisdomTree SP 500 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,192  in WisdomTree SP 500 on September 19, 2024 and sell it today you would earn a total of  2,607  from holding WisdomTree SP 500 or generate 28.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.22%
Values	Daily Returns

Xtrackers II   vs.  WisdomTree SP 500

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WisdomTree SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WisdomTree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers and WisdomTree

The main advantage of trading using opposite Xtrackers and WisdomTree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers position performs unexpectedly, WisdomTree can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in WisdomTree will offset losses from the drop in WisdomTree's long position.

The idea behind Xtrackers II and WisdomTree SP 500 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.